Feb. 9, 2011 - Sappi's chief executive officer, Ralph Boettger, said that the Group's financial performance improved and that operating profit in the fourth quarter (excluding special items) increased to US$137 million compared to US$81 million in the fourth quarter of 2009.

“The trend of improving performance continued in the quarter. Demand for our products remained good and prices increased gradually. Pulp prices remained high, benefiting our Southern African and North American businesses, which performed strongly," Boettger said.

"The fine paper business’ operating profit (excluding special items) improved 30% compared to the equivalent quarter last year. The performance of the European business, compared with a year earlier, showed significant improvement in sales volumes and average prices. However, as a result of input cost pressure particularly of purchased pulp, the business’ operating margins remain below expectations.

"Our North American business delivered a strong underlying performance, however, an extended planned outage for an upgrade in the pulp mill at Somerset mill commencing in October 2010 reduced output and profitability in the quarter. Going forward the Somerset Mill will benefit from increased pulp production while improving energy efficiency and further reducing its carbon footprint. The performance of the Southern African business improved further during the quarter.

"Demand for the chemical cellulose business remains strong, driven by demand for viscose fibres, particularly in Asia, and the Saiccor mill’s post expansion output and efficiency continued to improve. Our paper and paper packaging business had improved demand for containerboard, sackkraft and newsprint, but weaker demand for fine paper.

"The group achieved an annualised return on capital employed (ROCE) of 12.8% for the quarter, which was an improvement on the quarter ended September 2010 and ahead of our target minimum of 12%.

"Group sales for the quarter increased by 16% to US$1.9 billion over the equivalent quarter last year as a result of improved sales volumes and prices. Cash generated from operations was US$245 million for the quarter. Net cash utilised for the quarter was US$196 million. We expect positive cash generation for the rest of our financial year and good net cash generation for the full year.

"Operating profit for the quarter excluding special items improved to US$137 million, compared to US$81 million a year ago. Including special items, operating profit for the quarter was US$121 million compared to a profit of US$1 million for the equivalent quarter a year ago.

"Earnings per share for the quarter were 7 US cents (which included a charge of 3 US cents in respect of special items) compared to a loss per share of 10 US cents (which included a charge of 11 US cents in respect of special items,” Boettger said.

OUTLOOK

“We are pleased with the improving trend in the group’s financial performance. We expect demand for coated paper to remain reasonably firm in our major markets. Prices for coated mechanical paper in Europe increased in January 2011, which we expect to help restore this product category to profitability," Boettger said.

"Our raw material input costs are gradually increasing as commodity prices rise. We continue to focus on more efficient procurement and use of our inputs.

"Our chemical cellulose business is performing strongly and we intend to accelerate our plans for expanding this business through investment in additional capacity.

"Although our net debt increased in the quarter as a result of working capital growth, we intend to continue to reduce net debt this year. We also aim to reduce finance costs by, from time to time, applying a portion of our cash on hand to further debt repayment. We have today announced a tender offer to repurchase up to US$150 million of our senior notes, which mature in June 2012. This transaction will allow us to use a portion of our available cash on hand more efficiently and to repurchase a portion of such notes well ahead of their maturity.

"In our second financial quarter we expect the group’s operating profit (excluding special items) to continue the improving trend relative to the equivalent quarter last year, but to be below that of the first financial quarter,” Boettger concluded.